Must Read – the smartest man in Europe is worried

Byron Wein is one of those market strategists that I don’t always agree with but who I always try to read because he mmakes me think and challenges my view point. he has posted a compelling commentary on the Blackstone website this month titled “The Smartest man in Europe Is Very Cautious“.

The back ground is that once a year Wien tries to catch up with an old friend he’s dubbed the smartest man in Europe. Of this fellow Wien says,

I met him almost thirty years ago when he encouraged me to think about the investment implications of the end of communism in the Soviet Union. He later saw opportunities developing in the emerging markets of Asia. Over the years he has been early to see important changes in trends across the world. He is descended from a mercantile family that has been involved in trade for hundreds of years, going back to the operation of canteens for travelers along the Silk Road. Fluent in many languages, he trained in the United States after World War II, but returned to Europe to take advantage of the recovery taking place there.

I’m not sure what my ancestors were doing back when there were canteens on the Silk Road but what an interesting perspective through which to view the global political and investment landscape and no wonder he can sit in his helicopter above it all and take it in.

I recommend that you take the time to read the full article i have linked above but here are a few snippets of what “TSMiE” is saying.

On equities,

It’s very hard to make money in stocks. Earnings growth is the key to equity market performance and with the heavy debt burdens of the developed economies of the United States and Europe, growth is likely to be slow. I know earnings are going to be good this year but profit margins are high and it will be hard for earnings to exceed the nominal growth rate of the economy on a sustained basis.

On the Eurozone – Germany is the winner,

Ironically, the big beneficiary of the financial problems in the weaker European countries has been Germany. The credit crisis has kept the euro cheap. I know it doesn’t look that way to you Americans because your currency has deteriorated significantly, but to many others around the world German goods are very attractively priced, making their exports strong. That’s why it is in Germany’s interest to keep the European Union intact…

In a few years, if the situation has not improved, the European Union may have to be restructured

On the US,

The United States is destroying its currency. You cannot keep borrowing from abroad at the rate you are doing it and expect the dollar to maintain its value. America has been living beyond its means for a long time.

His portfolio,

Right now my portfolio is invested in gold and Swiss francs.

On Central Bankers,

The central bankers throughout the world have lost touch with reality. They did not recognize that the liquidity they were creating would produce excesses in the housing industry.

It all stems back to fiat currencies,

All the problems really started when the dollar was no longer convertible into gold. That happened in August 1971 and eliminated all currency restraints because money became only paper and not backed by anything real. The bankers were all cowards. Basel III closes the barn door after the horses are out. Leverage rose under Basel II.

No surprise here – the political process is broken,

The political process is also broken. Money drives politics. The problem is less severe in Europe than in the United States. Europe has four-year terms for elected officials and more campaign financing controls. Big business influences politicians everywhere and the politicians influence the regulators. Look at how much money is spent on lobbying in the United States. This is done much less by corporations in Europe.

He also thinks the world is in limbo till after the US election in 2012 and he remains positive on China and India.

It is only one man’s view but an interesting one nonetheless there are some solid investment themes there that you can take away if you like and some interesting insights.

You can see the themes there that will also support Australia, Australian equities and the AUD longer term as well.

Have a great day and as they used to say on Hill Street Blues – be careful out there.

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